Xylem Reports First Quarter 2022 Results

First quarter adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin decreased 290 basis points to 14.2 percent. Inflation, strategic investments, and the impact of chip shortages drove the margin decline, exceeding the benefits of price realization and productivity savings. Xylem generated net income of $82 million, or $0.45 per share, and adjusted net income of $84 million, or $0.47 per share, which excludes the impact of restructuring, realignment and special charges.

“The team delivered a strong result on very robust demand, despite a challenging operating environment,” said Patrick Decker, Xylem’s president and CEO. “That healthy demand drove record quarterly order intake in each segment of our business, and year-on-year backlog growth of 50 percent across the portfolio. As anticipated, we are seeing gradual improvement in chip supply, and revenues grew faster than our expectations, as did margin performance overall.”

“We expect global demand for our solutions to remain strong, and the team is doing an outstanding job realizing price from our position of market leadership. So, we are raising full-year guidance on revenue, and lifting the low end of our EPS range. Despite near-term headwinds from inflation and currency effects, our underlying momentum gives us even greater confidence we are on track to achieve our growth and strategic milestones we laid out at our Investor Day, last autumn.”

Outlook
Xylem now expects full-year 2022 organic revenue growth to be in the range of 4 to 6 percent, and 1 to 3 percent on a reported basis. This represents an increase from the Company’s previous full-year organic revenue guidance of 3 to 5 percent, and 1 to 3 percent on a reported basis. Reported revenue growth remains the same as our previous guidance due to the expected impact of foreign exchange effects.

Full-year 2022 adjusted EBITDA margin is expected to be in the range of 16.0 to 17.0 percent. This results in adjusted earnings per share of $2.40 to $2.70, narrowed from the previous range of $2.35 to $2.70. The increased guidance reflects strong demand, commercial momentum and price realization partially offset by foreign exchange headwinds.

Further 2022 planning assumptions are included in Xylem’s first quarter 2022 earnings materials posted at www.xylem.com/investors. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort.

Segment Leadership
The Company also announced that, aligned with its previous statements on growth strategy, it is unifying its Americas commercial team to reduce business complexity, and enhance customer experience. Effective immediately, Matthew Pine will lead combined commercial operations in the Americas, across all product and solution offerings, as well as leading both the Applied Water and Measurement & Control Solutions segments. Hayati Yarkadas, in addition to leading commercial operations in Europe and the Water Infrastructure segment, will now also lead the build-out of Xylem’s services offering, globally. Franz Cerwinka continues to lead commercial operations across Emerging Markets.

As a result of these changes, Colin Sabol will leave Xylem after a handover period during which he will focus on a smooth leadership transition.

“From Xylem’s beginnings, Colin has been a fundamental contributor to our growth story,” said Patrick Decker. “We are all profoundly grateful to have benefitted from his considerable talent, commitment and leadership.”

First Quarter Segment Results

Water Infrastructure
Xylem’s Water Infrastructure segment consists of its portfolio of businesses serving clean water delivery, wastewater transport and treatment, and dewatering.

• First quarter 2022 revenue was $533 million, an 8 percent increase organically compared with first quarter 2021. This healthy growth was underpinned by sustained demand in our wastewater utility business in the US and Western Europe, and increasing demand for dewatering, particularly in Emerging Markets.
• First quarter adjusted EBITDA margin was 15.9 percent, down 140 basis points from the prior year. Reported operating income for the segment was $74 million. Adjusted operating income for the segment, which excludes $1 million of restructuring and realignment, was $75 million, roughly flat versus the comparable period last year. Reported operating margin for the segment was 13.9 percent, flat versus the prior year, and adjusted operating margin was 14.1 percent, down 80 basis points versus the prior year. Strong price realization and productivity benefits were more than offset by inflation and investments.

Applied Water
Xylem’s Applied Water segment consists of its portfolio of businesses in industrial, commercial building, and residential applications.

• First quarter 2022 Applied Water revenue was $425 million, a 10 percent increase organically year-over-year. The segment delivered strong backlog execution and price realization across all end markets, and growth in all regions, led by commercial strength in the United States.
• First quarter adjusted EBITDA margin was 15.3 percent, down 380 basis points from the prior year. Reported operating income for the segment was $59 million and adjusted operating income, which excludes $1 million of restructuring and realignment costs, was $60 million, a 12.0 percent decrease versus the comparable period last year. The segment reported operating margin was 13.9 percent, down 290 basis points versus the prior year period. Adjusted operating margin declined 320 basis points to 14.1 percent. Strong price realization and productivity benefits were more than offset by inflation.

Measurement & Control Solutions
Xylem’s Measurement & Control Solutions segment consists of its portfolio of businesses in smart metering, network technologies, advanced infrastructure analytics and analytic instrumentation.

• First quarter 2022 Measurement & Control Solutions revenue was $314 million, down 9 percent organically versus the prior year. The decline is in-line with our expectations and a result of the ongoing chip supply shortage and the outsized impact to our North American smart metering business.
• First quarter adjusted EBITDA margin was 8.6 percent, down 470 basis points from the prior year. Reported operating income for the segment was $(10) million, and adjusted operating income, which excludes $2 million of restructuring and realignment costs, was $(8) million, a 173 percent decrease versus the comparable period last year. The Measurement & Control Solutions segment reported operating margin was (3.2) percent, down 570 basis points versus the prior year period. Adjusted operating margin of (2.5) percent decreased 560 basis points over the prior year period. Volume declines from component shortages and higher inflation more than offset price realization and productivity savings.